[Federal Register Volume 63, Number 137 (Friday, July 17, 1998)]
[Notices]
[Pages 38683-38685]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19052]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23313; 812-10664]


WRL Series Fund, Inc. and WRL Investment Management, Inc. Notice 
of Application

July 10, 1998.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').

ACTION: Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 15(a) of the Act and rule 18f-2 under the Act.
SUMMARY OF APPLICATION: The order would permit applicants to enter into 
and materially amend subadvisory agreements without obtaining 
shareholder approval.

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UMMARY: The order would permit applicants to enter into and materially 
amend subadvisory agreements without obtaining shareholders approval.

APPLICANTS: WRL Series Fund, Inc. (the ``Fund'') and WRL Investment 
Management, Inc. (the ``Adviser'').

FILING DATES: The application was filed on May 13, 1997, and amended on 
April 2, 1998. Applicants have agreed to file an amendment, the 
substance of which is included in this notice, during the notice 
period.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
be request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on August 4, 1998, 
and should be accompanied by proof of service on applicants, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549; Applicants, 201 Highland Avenue, Largo, Florida 33770-2597.

FOR FURTHER INFORMATION CONTACT:
Brian T. Hourihan, Senior Counsel, at (202) 942-0526, or Christine Y. 
Greenless, Branch Chief, at (202) 942-

[[Page 38684]]

0564 (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, 
D.C. 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. The Fund, a Maryland corporation, is an open-end management 
investment company registered under the Act. The Fund currently 
consists of seventeen separate series (each a ``Portfolio''), each of 
which has its own investment objective and policies.\1\ Shares of the 
Fund currently are sold only to separate accounts of Western Reserve 
Life Assurance Co. of Ohio (``Western Reserve''), PFL Life Insurance 
Company, and First AUSA Life Insurance Company, Inc. (``First AUSA'') 
to fund benefits under certain variable life insurance policies and 
variable annuity contracts.
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    \1\ Applicants request that the relief also apply to future 
Portfolios, and to any registered open-end management investment 
company that in the future is advised by the Adviser, or any person 
controlling, controlled by, or under common control with the Adviser 
(``Future Fund''). All existing investment companies that currently 
intend to rely on the order have been named as applicants, and any 
Future Fund that relies on the order will comply with the terms and 
conditions in the application.
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    2. The Adviser, registered under the Investment Advisers Act of 
1940 (the ``Advisers Act''), serves as investment adviser to the Fund 
pursuant to an investment advisory agreement (``Advisory 
Agreement'').\2\ Under the Advisory Agreement, the Adviser, subject to 
the supervision of the board of directors of the Fund (the ``Board''), 
selects and contracts with sub-advisers (``Sub-Advisers'') to provide 
each Portfolio with portfolio management. The Adviser also monitors and 
evaluates each Sub-Adviser's performance, and may recommend its 
termination. Each Sub-Adviser recommended by the Adviser is approved by 
the Board, including a majority of the directors who are not 
``interested persons'' of the Fund, as defined in section 2(a)(19) of 
the Act (``Independent Directors''). The Adviser also provides the Fund 
and the Portfolios with overall administrative services. The Fund pays 
the Adviser a fee for its services with respect to each Portfolio.
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    \2\ The Adviser is a direct, wholly-owned subsidiary of Western 
Reserve, which, in turn, is wholly-owned by First AUSA. First AUSA 
is wholly-owned by AEGON USA, Inc., a financial services holding 
company, which, in turn, is a wholly-owned indirect subsidiary of 
AEGON nv, a Netherlands corporation.
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    3. The Adviser has entered into contracts (``Sub-Advisory 
Agreements'') with fourteen Sub-Advisers, each of which is registered 
as an investment adviser under the Advisers Act. Currently, sixteen 
Portfolios are advised by one Sub-Adviser and one Portfolio is advised 
by two Sub-Advisers. Subject to the general supervision of the Adviser 
and the Board, each Sub-Adviser makes the specific investment decisions 
for the Portfolio it advises and places orders to purchase or sell 
securities on behalf of that Portfolio. None of the Sub-Advisers has 
broader supervisory, management or administrative responsibilities with 
respect to a Portfolio or the Fund. The Adviser pays each Sub-Adviser 
out of the advisory fees it receives from each Portfolio.
    4. Applicants request an order to permit the Adviser to enter into 
and materially amend Sub-Advisory Agreements without obtaining 
shareholder approval. The requested relief will not extend to a Sub-
Adviser that is an ``affiliated person'' of either the Fund or the 
Adviser, as defined in section 2(a)(3) of the Act, other than by reason 
of serving as a Sub-Adviser to one or more of the Portfolios 
(``Affiliated Sub-Adviser'').

Applicants' Legal Analysis

    1. Section 15(a) of the Act makes it unlawful for any person to act 
as an investment adviser to a registered investment company except 
pursuant to a written contract that has been approved by a majority of 
the investment company's outstanding voting securities. Rule 18f-2 
under the Act provides that each series or class of stock in a series 
company affected by a matter must approve the matter if the Act 
requires shareholder approval.
    2. Section 6(c) of the Act authorizes the Commission to exempt 
person or transactions from the provisions of the Act to the extent 
that the exemption is necessary or appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policies and provisions of the Act. Applicants request 
relief under section 6(c) from section 15(a) of the Act and rule 18f-2 
under the Act. For the reasons discussed below, applicants believe the 
requested relief meets the standard of section 6(c).
    3. Applicants assert that the Fund's investors rely on the Adviser 
for investment management, and except the Adviser to select and monitor 
one or more Sub-Advisers best suited to achieve a Portfolio's 
investment objective. Applicants represent that the Adviser has 
substantial experience in performing these functions for the Fund. 
Applicants submit that, consequently, from the perspective of an 
investor, the role of the Sub-Advisers is comparable to that of 
individual portfolio managers employed by other investment company 
advisory firms. Applicants thus contend that, without the requested 
relief, the Fund may be precluded from promptly and effectively 
employing Sub-Advisers best suited to the needs of the Portfolios. 
Applicants also that the Advisory Agreement will remain fully subject 
to the requirements of section 15 of the Act and rule 18f-2 under the 
Act, including the requirements for shareholder approval.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Adviser will not enter into a Sub-Advisory Agreement with 
any Affiliated Sub-Adviser without the Sub-Adviser Agreement with any 
Affiliated Sub-Adviser without the Sub-Advisory Agreement, including 
the compensation to be paid under the Agreement, being approved by the 
variable contract owners with assets allocated to any sub-account of a 
registered separate account for which the Portfolio serves as a funding 
medium.
    2. At all times, a majority of the Board will be Independent 
Directors, and the nomination of new or additional Independent 
Directors will be within the discretion of the then-existing 
Independent Directors.
    3. When a Sub-Adviser change is proposed for a Portfolio with an 
Affiliated Sub-Adviser, the Board, including a majority of the 
Independent Directors, will make a separate finding, reelected in the 
Board's minutes, that the change is in the best interests of the 
Portfolio and the variable contract owners with assets allocated to any 
sub-account of a registered separate account for which the Portfolio 
serves as a funding medium, and does not involve a conflict of interest 
from which the Adviser or the Affiliated Sub-Adviser derives an 
inappropriate advantage.
    4. The Adviser will provide general management and administrative 
services to the Fund and the Portfolios, including overall supervisory 
responsibility for the general management and investment of the Fund's 
securities portfolios, and, subject to review and approval by the 
Board, will: (i) Set each Portfolio's overall investment strategies, 
(ii) select Sub-Advisers, (iii) monitor and evaluate the performance of 
Sub-Advisers, (iv) allocate and, when appropriate,

[[Page 38685]]

reallocate a Portfolio's assets among its Sub-Advisers in those cases 
where a Portfolio has more than one Sub-Adviser, and (v) implement 
procedures reasonably designed to ensure that the Sub-Advisers comply 
with the Portfolio's investment objectives, policies, and restrictions.
    5. Within 90 days of the hiring of any new Sub-Adviser, the Adviser 
will furnish the variable contract owners with assets allocated to any 
sub-account of a registered separate account for which the Portfolio 
serves as a funding medium with all information about the new Sub-
Adviser that would be included in a proxy statement. The information 
will include any change in the disclosure caused by the addition of a 
new Sub-Adviser. The Adviser will meet this condition by providing the 
variable contract owners with an information statement meeting the 
requirement of Regulation 14C, Schedule 14C, and item 22 of Schedule 
14A under the Securities Exchange Act of 1934.
    6. The Fund will disclose in its prospectus the existence, 
substance, and effect of any order granted pursuant to the application. 
In addition, the Fund will hold itself out to the public as employing 
the management structure described in the application. The Fund's 
prospectus will prominently disclose that the Adviser has ultimate 
responsibility for the investment performance of the Portfolios due to 
its responsibility to oversee Sub-Advisers and recommend their hiring, 
termination, and replacement.
    7. Before the Fund may rely on the requested order, the operations 
of each Portfolio as described in the application will be approved by a 
majority of the Portfolio's outstanding voting securities, as defined 
in the Act, pursuant to voting instructions provided by the variable 
contract owners with assets allocated to any sub-account of a 
registered separate account for which the Portfolio serves as a funding 
medium, or, in the case of a Future Fund whose shareholders purchased 
shares on the basis of a prospectus containing the disclosure 
contemplated by condition 6 above, by the sole shareholder before 
offering shares of the Future Fund to the variable contract owners 
through a separate account.
    8. No director or officer of the Fund or of the Adviser will own 
directly or indirectly (other than through a pooled investment vehicle 
that is not controlled by the director or officer) any interest in a 
Sub-Adviser, except for: (i) Ownership of interests in the Adviser or 
any entity that controls, is controlled by, or is under common control 
with the Adviser, or (ii) ownership of less than 1% of the outstanding 
securities of any class of equity or debt securities of a publicly 
traded company that is either a Sub-Adviser or an entity that controls, 
is controlled by, or is under common control with a Sub-Adviser.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-19052 Filed 7-16-98; 8:45 am]
BILLING CODE 8010-01-M